Half of renewable power now sold directly

Yesterday, Germany's Environmental Ministry (BMU) published a press release praising its Market Bonus, an incentive for producers of green power to sell their electricity on the exchange instead of receiving feed-in tariffs. A closer look reveals a more mixed outcome.

In a review (PDF in German published in January) of 2012, the first year in which the Market Bonus was offered, a group of German researchers from Fraunhofer ISI point out that the policy has led to a number of improvements: better statistics for current power production, better remote control of wind farms, the development of a market for green power, and better integration of dispatchable biomass facilities based on market demand.

At the end of 2012, the researchers found that 80 percent of wind turbines had opted for the market bonus, thereby forgoing feed-in tariffs. The figure was 39 percent of biomass units and seven percent for photovoltaics. As the raw data for 2013 reveal, that lineup has not changed much (PDF in German). Roughly 25 GW of Germany's approximately 33 GW of wind turbines now sell power on the exchange instead of receiving feed-in tariffs, compared to roughly 7 to around 11 percent of solar arrays, depending on the month.

From left to right: the first column (green) shows the level of a hypothetical feed-in tariffs. The second column (yellow) shows the generalized wholesale sale price, which is assumed to be lower, thereby requiring (arrows) a market bonus to make up for the difference. The third and fourth columns show actual assumed power sale prices (pale beige sections at the bottom) along with the "market bonus" and "management bonus" offered. In both cases, sellers of green power get more money than they would under feed-in tariffs. The result is a higher cost for the energy transition, but some of the costs are hidden and not passed on as a part of the renewables surcharge, thereby making the transition seem less expensive. (Click to enlarge)

Honolulu99 / Wikipedia

The reason is quite simple: feed-in tariffs for wind power are generally quite low (after the initial phase of around five years, feed-in tariffs drop to roughly 5 cents per kilowatt-hour), so it can be more lucrative to sell power on the exchange. In return, the lowest feed-in tariffs are currently around 10 cents for PV, a level practically never reached on the market.

If you are wondering why someone who could get 10 cents nonetheless opts for five, you will be interested to know that a bonus is paid – actually two (see the chart to the left) – as an extra incentive. Critics of this policy therefore argue that it is a bookkeeping trick to make the actual cost of renewables look lower by hiding expenses. In reality, as the chart shows, more can be paid as a part of the Market Bonus incentive than would be paid under feed-in tariffs.

Extra payment is provided to cover the extra costs of monitoring and management, but some proponents of renewables say the policy provides too great a return. Nonetheless, the BMU says it is pleased with the outcome and explains that "some 70 firms and power traders currently directly market renewable electricity on the power exchange." While wind and solar fundamentally remain non-dispatchable, the policy does send a signal to the markets. As the BMU's press release points out, "on June 16, the price of wholesale electricity was negative, and more than 3,200 megawatts of renewable generation capacity… curtailed production, leading to millions of euros in savings." (Craig Morris)